Heterogeneity of Hospitals
Dormont, Brigitte (2014), Heterogeneity of Hospitals, in Culyer, Anthony J., Encyclopedia of Health Economics, Elsevier : Amsterdam, p. 456-461. 10.1016/B978-0-12-375678-7.01314-6
Book titleEncyclopedia of Health Economics
Book authorCulyer, Anthony J.
Number of pages604
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Laboratoire d'Economie de Dauphine [LEDa]
Laboratoire d'Economie et de Gestion des Organisations de Santé [Legos]
Abstract (EN)Payment methods based on a fixed price per diagnosis related group provide hospitals with a perfect incentive for cost reduction. However, costs can rise for some hospitals because of exogenous factors. This situation may bring them to select patients and lower care quality to avoid bankruptcy. To prevent this, payments should allow for legitimate sources of cost heterogeneity. It is possible to design a payment method which allows for unobservable sources of cost heterogeneity, provided they are time invariant. While it reimburses hospitals for extra costs resulting from undesirable long-term moral hazard, this method can induce substantial savings because it provides incentives to reduce costs linked to transitory moral hazard.
Subjects / KeywordsDiagnosis related group (DRG); Efficiency; Exogenous/endogenous cost variability; Heterogeneity; Hospital cost; Moral hazard; Patient selection; Prospective payment system; Quality; Yardstick competition
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